Wednesday, 5 October 2016

In his typical fashion, Dr Mahamudu Bawumia, Vice Presidential candidate of the New Patriotic Party, has presented a 2016 edition of his annual lecture, that simply comprises a mixture of half-truths, outright lies and deliberate misinterpretation of economic trends and events, in an effort to discredit the economic stewardship of the National Democratic Congress government of His Excellency, President John Dramani Mahama.

If there is any difference between this year’s lecture and those of previous years, it is that his desperation shows even more clearly this time around in the form of the number of statistical untruths and other factual inaccuracies he deploys to justify his arguments, coupled with ingenious, deliberate misinterpretation of the facts that he actually stated correctly.

This is not surprising considering that his sole motive for the annual lectures is to win the support of the electorate and with a general election just a few months away he has resorted to all sorts of intellectual and technical subterfuge to achieve his objective.

Space constraints will not allow me to respond to every single argument he has mustered over his 67 page treatise. However, since the issues addressed to not require the convoluted treatment he has given them, similar space is not required anyway and I will keep it simple for everyone to understand.

ECONOMIC GROWTH RATES

Firstly and most importantly, he has tried to discredit the incumbent NDC government on the grounds that Ghana’s economic growth has slowed during its tenor and this has made people worse off than when the predecessor NPP government of John Agyekum Kufuor was in power.

To do this he has outrightly lied that in 2008, the last year of that government, Gross Domestic Product growth was 9.1%. The truth is that it was 8.4%. But even more dishonest is his use of a single year, the one in which that government had its best performance, to illustrate its GDP growth achievements.

The fact is that using the more accurate parameter of average GDP growth over the entire eight year tenor in office, the NDC government’s average of 7.3% is significantly higher than the 5.8% average recorded by the preceding NPP government.

It is equally important to put each year’s growth rate into the proper context. The fact is that the NDC assumed office at the time a global economic recession was erupting, which slowed growth in virtually every region around the world.

It is instructive in this regard that under the NDC government, Ghana’s economic growth has outstripped that of other African countries by a greater degree than it did during the tenor of the NPP government.

PER CAPITA INCOME VERSUS LIVING STANDARDS

More important than this though is the effect that successive government have had on the living standards of Ghanaians. Indeed this is the most important measure of the success of any government.

Dr. Bawumia claims that Ghanaians incomes grew faster under the NPP government than under the incumbent NDC government, and uses his statistics to claim that this means living standards improved more under the former than under the latter.

He is wrong on both counts, but has tried to once again use intellectual dishonesty to score undeserved political points.

To justify his claim he uses per capita income growth and changes in the minimum wage as measures of improvements in the income of the average Ghanaian, and then uses that as a substitute for measuring changes in living standards. None of this is correct.

Firstly, per capita income only measures the average income of a populace. Thus a tripling of the average income of the richest 20% of the populace would result in an increase in per capita income, even if accompanied by a halving of the average incomes of the poorest 50% of the populace.

Indeed we are all witnesses to the fact that this was the trend under the stewardship of the NPP government, and this explains why the NPP was voted out of power by the majority of Ghanaians in the December 2008 general elections, despite the major increase in per capita income as claimed by Dr. Bawumia.

The NDC’s approach to governance is dictated by its philosophical stance as a social welfarist party, which means we seek improvements in the welfare of the majority of the people.

This inevitably creates a certain level of disconnect between individual or institutional wealth and the benefits that can be obtained from State policy and direct interventions.

The NPP which adheres to its belief in “property owning democracy” deliberately seeks to cement a connection between the two, with the result that the relative few who already have the most property are those to benefit the most from its governance philosophy.

To avert attention from this core truth, Dr. Bawumia tries to use increases in the minimum wage as a measure of a government’s success in reducing income inequality.

This is inaccurate in any economy and in one such as Ghana’s where less than 20% of the work force are in the formal sector and therefore subject to minimum wage regulations, it is simply absurd.

The fact that Dr. Bawumia trumpets NPP’s supposedly superior record with regards to annual increases in the minimum wage merely illustrates the fact that his party ignores the plight of the overwhelming majority of Ghanaians, who are in the informal sector, and whose incomes cannot be improved simply by raising the minimum wage.

These are the artisans such as fitters, hairdressers, masons, caterers and the likes who are in informal employment and whose incomes are not connected to the minimum wage.

The NDC, in line with its social welfares stance, emphasizes policies that will improve the living standards of such people, who comprise the overwhelming majority of the populace, through interventions by the State.

Their appreciation of the positive effects of our efforts in this regard, continues to translate into electoral endorsements by the majority of Ghanaians every four years, and this year will be no different.

Here, it is equally important to remind everyone that incomes alone do not determine living standards. Access to education, healthcare, electricity, water etc are equally important and with regards to ensuring universal access to public goods and services by citizens, especially those with relatively low incomes, the NDC has a far better track record of accomplishment than the NPP.

The bottom line in this regard is that whereas the NPP seeks to use the already well off as growth poles for the economy, the NDC seeks to carry every one along together. While the debate may continue to rage about the relative long term efficacy of each strategy, we at the NDC believe that social justice demands a more equitable approach to the deployment of public resources by the State, than how the NPP distributes State resources which are directed towards the relatively wealthy on the argument that when they growth their wealth, it will trickle down to the relatively poor. This country belongs to all Ghanaians, both rich and poor, and the latter should not be deprived of State support to get ahead in life simply because the former can deliver better growth statistics, even if at the expense of the latter.

THE PUBLIC DEBT

During the eight years of the Kufuor administration, Ghana was granted massive debt relief, first under the Heavily Indebted Poor Countries (HIPC) Initiative, and then under the Multi Donor Debt Relief Initiative.

This enabled Ghana to reduce its public debt to GDP ratio from 126% at the time of assumption of office to 33.6% by the time the electorate rejected the NPP at the end of 2008.

Dr. Bawumia has dealt extensively on how much the NDC has borrowed since assuming power, resorting to gross exaggerations and outright untruths that are now well documented and so will not be repeated yet again here.

However, allow me to add several other important facts.One is that, in the immediate aftermath of the HIPC and MDRI in 2006, by which time Ghana’s debt to GDP ratio had been reduced to 26.2% through debt forgiveness, the NPP binge that exceeded most of what the NDC has done subsequently.

In 2007, the debt to GDP ratio increased from 26.2% to 31.1%, a proportionate increase of 18.38%.

That proportionate increase was higher than any incurred over the current eight year tenor of the NDC with the exception of 2010 and 2014.

In this regard it should be noted that under the John Dramani Mahama Presidency, it was only in 2014 that the debt to GDP ratio grew faster, in proportionate terms than in 2007, immediately after the NPP government was let off the leash of the IMF and World Bank.

Indeed that was the year when Ghana issued its first Eurobonds to the tune of US$750 million, virtually all of which went into unsustainable petrol and electricity subsidies in an unsuccessful effort to effectively bribe the electorate ahead of the next year’s general elections to turn a blind eye to the NPP’s failure to improve living standards during their tenor.

The latest Eurobond issue, which Dr Bawumia refers to in derogatory terms, is being used primarily to pay off the outstanding balance on that issue, which could not even be accounted for.

It should also be remembered that the foreign borrowing of the NPP government was constrained by their incompetence in securing the borrowing they sought rather than deliberate restraint on their part.

We were all witness to the two separate ludicrous efforts of the Kufuor administration to secure US$1 billion in foreign loans, the latter attempt eventually revealed to source from an address that turned out to be a hair dressing salon.

Dr Bawumia points to what he says is inordinately high debt servicing costs.

The truth of the matter is that our relatively high debt servicing costs compared with previous eras is the result of Ghana’s new status as a middle income country, achieved by the incumbent NDC government, which no longer entitles us to borrow on concessionary terms from multilateral development finance institutions such as the World Bank and the African Development Bank, because lending on such terms is restricted to low income countries of which Ghana is no longer one.

This means Ghana now has to pay full commercial rates for its foreign borrowings which costs us an extra six to eight percent per annum in interest rate.

Since we hitherto could borrow at less than two percent per annum on concessionary terms compared with close to 10% on commercial terms this has quadrupled our interest costs on foreign borrowing, a situation which every government in Ghana, be it NDC, NPP or any other party, would have to cope with.

The alternative is domestic borrowing, but the incumbent NDC government has prudently been reluctant to emphasise this over foreign borrowing to avoid crowding out the private sector from the local credit market, another false allegation which Dr. Bawumiah has deliberately made against this government.

The fact is that investment by the commercial banking industry in government debt securities currently accounts for less than one fifth of their combined entire earning assets portfolios, whereas lending to enterprises, institutions and households accounts for more than 70% of the banking industry’s earning assets portfolio.

The decline in bank lending portfolio growth is rather the result of rising non-performing loans, which itself is the inevitable short term result of the increasing willingness of the banks to take on credit risks, especially to SMEs which they realize are central to this government’s private sector support efforts.

As SMEs improve their corporate governance and financial management within an improving macro-economic operating environment, loan repayment performance will improve.

In the meantime, the Bank of Ghana is currently preparing to order a bank recapitalization exercise which will strengthen banks’ balance sheets while this process takes effect.

HIGH INTEREST RATES

Another deliberately misleading argument that Bawumia has presented is that government’s high appetite for domestic debt and high inflation are the reason for the high interest rate regime currently in place.

As a former senior central banker he knows better but in typical fashion has deliberately misinterpreted the facts in order to score cheap political points.

The truth is that the high interest rate regime put in place by the BoG through its Monetary Policy Rate is done for two prudent reasons, and both are related to the cedi exchange rate.

One is to make cedi denominated financial portfolio investments competitive against alternatives that are foreign currency denominated.

This has served to encourage investors to hold cedi denominated investments rather than foreign currency denominated investments because of their superior yields, which in turn has reduced demand pressure on forex and so has contributed crucially to the current exchange rate stability being enjoyed by the cedi.

The second reason is that tight monetary policy through relatively high interest rates is curbing demand pull inflation by restraining the amount of credit driven demand in the economy.

Specifically, this strategy by the BoG is curbing credit driven demand for foreign exchange, which is the other reason why the cedi has stabilized. Simply put, the choice facing Ghana has been that between easy access to credit amid a sharply depreciating cedi or less credit growth amid a stable cedi.

The business and consumer confidence surveys conducted by the BoG and the Association of Ghana Industries both indicate a preference for the latter, since it is the most crucial factor affecting the fortunes of enterprises and households alike, which is precisely the strategy being adopted.

FISCAL DEFICITS

While Dr. Bawumiah devotes considerable attention to criticizing the size of the fiscal deficits under the NDC government he conveniently neglects to remember that the single biggest deficit under the 4th Republic was incurred in the final year of the Kufuor administration, in 2008, which amounted to 12.4% of GDP.

In no year has the subsequent NDC government incurred a deficit that large.

It is instructive that the 2008 deficit was incurred despite the low public debt following the extensive debt forgiveness Ghana had enjoyed over the previous six years.

It was simply the result of an ill-advised attempt to use subsidies and populist public spending to bribe voters in order to win the 2008 elections.

Indeed, the winning of elections is what dictates everything NPP does, no matter the cost to the State and to Ghanaians.

This includes Dr. Bawumia’s dishonest public lecture which has elicited this response.

Conversely, the NDC government under President Mahama is committed to doing the right thing in the interest of the State and Ghanaians, which informs our hard decisions that Dr. Bawumia cannot understand because while they make for good economics, they make for “bad” election year politics from the NPP’s self-serving perspective.

This year, under the NDC government, Ghana is on course to achieving its lowest election year deficit and the first primary budget surplus in a decade.

Contrary to Dr Bawumia’s dubious assertions, any competent economist will confirm that this is laying the foundation for falling inflation and interest rates and the sustainable stability of the cedi’s exchange rate, as well as accelerating economic growth, which is already happening, even amid sluggish global economic growth.

LOCAL VALUE ADDITION

One aspect of our economic management which Dr. Bawumia conveniently omitted from his lecture is that of local participation and value added.

The NDC’s commitment to ensuring the increased participation in and resultant benefits from the Ghanaian economy for Ghanaians themselves is perhaps best illustrated by the legislation passed in 2014 which enforces increased local participation in the upstream oil and gas industry.

In similar vein, government, in collaboration with the Ghana Chamber of Mines has instituted regulations for increased local participation in the mining industry too.

The Ghana Investment Promotion Centre has, over the past two years instituted measures aimed at increasing local investment in the economy and a more widespread geographical spread of registered investments around Ghana.

The NPP never even considered such initiatives during its eight year tenor, but now, Dr. Bawumia, having learnt from the success of the incumbent NDC government, says they will adopt this as deliberate policy.

It is instructive that Dr. Bawumia, at the same time as he claims that local value added will be put on an NPP agenda, also promises that his government would remove import duties on imported raw materials ostensibly to lower local production costs.

He further says that increased production and resultant taxes would compensate for the forgone import duty revenue. However, this would make imported raw materials more competitive than locally sourced ones and thus destroy all the commendable efforts the NDC government has made to make enterprises in Ghana look inward for their production inputs, which has given Ghana more local value added, given Ghanaians such as farmers more employment in supplying locally sourced inputs, and has conserved scarce foreign exchange hitherto spent on importing raw materials from abroad. This again shows NPP’s foreign, rather than Ghanaian policy mind set.

The inward looking strategic initiatives by the NDC, which were never considered by the NPP government illustrate the biggest difference between the two.

The NDC’s approach to economic government is dictated by its desire to improve the lot of all Ghanaians, ensuring that the poor as well as the rich enjoy improved living standards in practical terms through improved access to social and economic amenities, utilities, goods and services.

The NPP however, limits itself to statistical performance indicators which only provide national averages, but fail to measure the impact of its policies on individual enterprises and households.

Statistics have their uses but when a political party reduces the Ghanaian populace to statistics rather than real life people, the most likely result is that while progress may be made in the statistical outcomes, the majority of the people’s living standards would inevitably decline.

This is what tends to happen under an NPP government and this is why, having experienced life under each, Ghanaians prefer to vote for an NDC government.

This is what has happened during the past two general elections, and with Ghanaians using practical experience rather than graphs and tables to measure their progress under the two alternatives, this is what will happen again in December.